Baca-Pogorzelska: mining sector still repeats the same mistakes

I have been writing about coal for the past 10 years. But it seems like I have a continuing deja vu. And it is said that men learn from mistakes… – writes Karolina Baca-Pogorzelska a journalist at Gazeta Prawna daily.

For a few months now I have been writing about the fact that coal is running out, but it is like I hit a brick wall because the state owner of mines does not seem to care. The propaganda of success is in full swing, the mining industry got up from its knees and the Polish Mining Group (PGG) has as MUCH as PLN 8 m of net profit after the first half of the year (strangely enough they do not want to reveal the operating and sales profits).

PGG announced its average annual investment will be PLN 1.7 bn. The problem is though that building new longwalls, which will translate into real increase in production, will take about 2-2.5 years. This means the PGG mines may in reality increase their output in 2019 or 2020. The question is, whether the demand for coal will be as big then as it is today?

A few years ago when there was coal oversupply in Poland and across the world, our mines started to search for savings because the prices fell but extraction costs did not. Unfortunately, they did the worst possible thing and axed the CAPEX, i.e. limited investments. All investments, including those in new workings – potential new longwalls. Yup, at the Bogdanka mine ready to produce 11-11.5 mtpa after the investment in the Stefanów field, the output stopped at 9 mt.

When the coal prices started to increase and the ‘glut’ disappeared it turned out we did not have a place to extract from. For instance, at Kompania Węglowa, PGG’s predecessor, there were 45 instead of 60 longwalls. It just happened like that. You can’t squeeze water from a stone.

Today we have the same exact situation. PGG is bearing the consequences of underinvestment, even though since 1 May 2016 it has received almost PLN 3 bn from the energy industry, state funds and Węglokoks. 3. Billion. Zlotych! So my question is: where is the money? Why in 2016 CAPEX was lowered by 36%? Why are we happy about an PLN 8 m net profit of the company? This is a figure close to a statistical error. I honestly do not understand why champagne corks are popping at Powstańców St. in Katowice (PGG’s hq) and on the Trzy Krzyże Square in Warsaw (Ministry of Energy’s seat). We are missing loads of coal and this is PGG’s fault. We are obviously talking about steam coal because Jastrzębska Spółka Węglowa (JSW), EU’s biggest producer of coking coal, which is necessary for steel production, is extracting more than it had planned. So when it comes to JSW I always stress that this is an example of a successful reform, albeit at times painful, implemented by the PiS government. Let us remind: JSW closed Jas-Mos and Krupiński mines, sold SEJ and PEC (energy and heating) companies to PGNiG. Additionally, its Victoria coking plant in Wałbrzych was bought by ARP and TF Silesia.

On top of that, the company suspended social benefits for three years – free coal allowance (took away from pensioners altogether) and the fourteenth pay. Naturally, the company was aided by the crazy prices of coking coal, but one needs to know how to use an upturn and JSW does. But PGG does not. Because if it at least produced according to plan, instead of ‘bending’ the reality as much as possible, then PGG and its shareholder, Węglokoks, would earn like mad today. Let me remind that a year ago a ton of coal in the ARA harbors (Amsterdam – Rotterdam – Antwerp) cost about USD 40. Today it is about USD 85. And we do not have coal! Unfortunately, this is a double-edged sword. We don’t have it, so we have to import it. Import at high prices. And we cannot export it. Export at high prices. Isn’t this absurd? Of course it is! As always. Whereas according to my sources, this year PGG will not dig out about 30 km of new galleries. This is, give or take, about four longwalls, which could yield 32-40 thousand tons of coal per day.

I am fuming with helpless anger when I hear yet another time the PGG’s management board assurances that the company will extract 32 mt of coal in 2017. Even if they add the total yearly production of Katowicki Holding Węglowy (PGG took over its mines on 1 April 2017), which they actually did already, the math will be ruthless. However, recently I have come under the impression that I am the only one who understands this and is bothered by it. I advise everybody not to tell me I didn’t warn you, once winter is here.